Engineering Economy

Sullivian W.G, Wicks E.M

Blank, L.T, A.Tarquin (2012) Mohamad Sirin, R (2007)
and Koelling C.P (2012)
 Chapter 1

Introduction to
Engineering Economy
1-2
 Engineering economy…

involves the systematic evaluation

of the economic merits of proposed
solutions to engineering
problems.
1.1 Why Engineering Economy is
Important to Engineers?
❖ Engineers design and create …design & build…what type of
design involved?
❖ Designing involves economic decisions…size min or max?
A=125m2, provide 4Y20 (Area 130m2 not 4Y25 (Area =
135m2)
❖ Engineers must be able to incorporate economic analysis
into their creative efforts …Project A, there are 20 companies
submitted tender for this project..

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1.1 Why Engineering Economy is
Important to Engineers? (Con’t)
❖ Often engineers must select and implement from multiple
alternatives..
❖ Understanding and applying time value of money, economic
equivalence, and cost estimation are vital for engineers
❖ A proper economic analysis for selection and execution is a
fundamental task of engineering.. One company submitted 3
tenders, which are 3BQ...which one the best price??

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1.2 Role of engineering economic
analysis in decision making
• Choosing the best design for a high-efficiency gas furnace.
• Selecting the most suitable robot for a welding operation on an automotive
assembly line.
• Making a recommendation about whether jet airplanes for an overnight delivery
service should be purchased or leased.
• Determining the optimal staffing plan for a computer help desk.
• Determing labour …pekerja asing or tempatan
• Progress Report..Interim payment, S-Curve
• Bidding (BQ)…the best price to select contractor
• Hire purchase..machineries
1.3 SEVEN (7) fundamental principles
of engineering economy.
1) Develop the alternatives
Carefully define the problem, then the choice (decision) is
among alternatives. The alternatives need to be identified and
then defined for subsequent analysis.

2) Focus on the differences

Only the differences in expected future outcomes, among the
alternatives, are relevant to their comparison and should be
considered in the decision.
1.3 SEVEN (7) fundamental principles
of engineering economy (Con’t)
3) Use a consistent viewpoint
The prospective outcomes of the alternatives, economic and
others, should be consistently developed from a defined
viewpoint (perspective)

4) Use a common unit of measure

Using a common unit of measurement to enumerate as many of
the prospective outcomes as possible will simplify the analysis
of the alternatives.
1.3 SEVEN (7) fundamental principles
of engineering economy (Con’t)
5) Consider all relevant criteria
Selection of a preferred alternative (decision making) requires
the use of a criterion (or several criteria). The decision process
should consider both the outcomes enumerated in the monetary
unit and those expressed in some other unit of measurement or
made explicit in a descriptive manner.
6) Make uncertainty explicit
Risk and uncertainty are inherent in estimating the future
outcomes of the alternatives and should be recognized in their
analysis and comparison.
1.3 SEVEN (7) fundamental principles
of engineering economy (Con’t)
7) Revisit your decisions
Improved decision making results from an adaptive process;
to the extent practicable, the initial projected outcomes of the
selected alternative should be subsequently compared with
actual results achieved.
No Principle of eng. economy Example issue

1 Develop the alternatives SMART Tunnel

-carefully define the problem, then the
choice (decision) is among alternatives

Problem
1.Sinkholes 2. Crack

Propose all decision alternative

1.Service & Repair for maintenances purpose only
2.Redesign, sampling & lab testing for others action approval from
authorities
3.New improvement technologies
No Principle of eng. economy
2 Focus on the differences
only the differences in expected future
outcomes among the alternatives are
relevant to their comparison and
should be considered in the decision.
3 Use a consistent viewpoint
the prospective outcomes of the
alternatives, economic and other,
should be consistently developed
from a defined viewpoint
(perspective)
Example issue
Choose expected decision alternative (2) & (3)
2. Redesign, sampling & lab testing for others action
approval from authorities
3. New improvement technologies
2. Redesign, sampling & lab testing for others action
approval from authorities
a. it takes time to design & prepare
reports and approvals by the authorities.
b. involves cost and skilled labor to make maintenance.
3. New improvement technologies
a. using the Variable Density TB Machine
not the Earth Pressure Balance for different soil
condition.
b. employing specially trained skilled workers
c. using materials that have high strength
No Principle of eng. economy Example issue
4 Use a common unit of measure 2. Redesign, sampling & lab testing
• Redesign & approval takes a long time
using a common unit of measurement to • High cost

enumerate as many of the prospective • well-trained skilled workers

outcomes as possible will simplify the 3. New technologies to prevent Crack – Steel fibre
analysis of the alternatives. Constructive:
•Less material cost
•Labor reduction
•Less human error
Structural:
•Smaller crack width openings
•Higher durability
•Higher impact and abrasion resistance
•Higher fatigue strength
•Improved fire resistance properties
5 Consider all relevant criteria
selection of a preferred alternative (decision Review again all criteria
making) requires the use of a criterion (or several
criteria). The decision process should consider
both the outcomes enumerated in the monetary
unit and those expressed in some other unit of
measurement or made explicit in a descriptive
manner.
No Principle of eng. economy
6 Make uncertainty explicit
risk and uncertainty are inherent in
estimating the future outcomes of the
alternatives and should be
recognized in their analysis and
comparison.
7 Revisit your decisions
improved decision making results from an
adaptive process; to the extent
practicable, the initial projected outcomes
of the selected alternative should be
subsequently compared with actual results
achieved.
Example issue
Advantages
• Minimized cracking and spalling
•Less repair and maintenance needed
•Better aesthetical appearance of the tunnel
•No limitations for M&E to drill
•Higher durability
Disadvantages
• The use of SFRC as tunnel lining is uncommon
• Unlike conventional rebar design, SFRC mix design is more complex.
• No precedence of mix design to follow
• Limited guidelines on the sampling and testing of SFRC samples
• Engage experienced consultants to facilitate:
Choose the best decision ..no (3)
1.4 General Steps for Decision Making Processes
UNDERSTAND THE PROBLEM
Define objectives
Investigate the issue COLLECT RELEVANT INFORMATION

List down potential DEFINE A SET OF FEASIBLE

ALTERNATIVES
solutions
Discuss criteria/ requirement IDENTIFY DECISION MAKING CRITERIA
for each alternatives
EVALUATE THE
Conduct analysis ALTERNATIVES

SELECT THE BEST

Choose and decide ALTERNATIVE

Action and monitor IMPLEMENT, MONITOR AND EVALUATE

THE RESULT

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 EXAMPLE:
No Decision Making Processes
1 Understand the problem
(define objectives )
2 Investigate the issue
3 Define the set of feasible alternatives
discuss any solution
4 Identify the criteria for decision
making...list out
5 Evaluate the alternatives and apply
sensitivity analysis..
6 Select the “best” alternative.. choose
7 Implement the alternative and monitor
results.. action
Example issue
broken pile
tilting during pilling work
List all possible solutions, use lighter piles? follow the
original size? redesign footing etc.
i. Lighter piles
ii. follow the original size
iii. redesign footing
i. if lighter pile ...it will disrupt the structure
ii. follow the original size... No Can not carry the load from
structure ..
iii. redesign footing… yes, can carry the structure
(iii) redesign
submit drawing for approvals
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1.5 Steps in an Engineering Economy Study
Problem description
Objective Statement
One or more approaches
Available data
to meet objectives
Alternative for solutions Expected life
Revenues
Cash flows and other estimates Costs
Taxes
Project financing
Measure of worth criterion PW, ROI, B/C etcs.

Engineering economic analysis

Consider:
Best alternative selection • Non-economic factors
• Sensitivity analysis
• Risk analysis
Implementation and monitoring

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Maths application in engineering economy
• Engineering Economy involves
– Formulating .. v=P x L x t
– Estimating, ..slab
– Evaluating …how many mixer lorry want to order???
expected economic outcomes of alternatives
designed to accomplish a defined purpose
• Easy-to-use math techniques simplify the evaluation,
– eg : Teorem Pithagoras
• Estimates of economic outcomes can be deterministic or
stochastic in nature.
– eg : Progress Curve (S-curve)
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Electronic spreadsheets are a powerful tools in
engineering economic analysis

• Most engineering economy problems can be formulated and

solved using a spreadsheet.
• Large problems can be quickly solved.
• Proper formulation allows key parameters to be changed.
• Graphical output is easily generated.

• Give example of spreadsheets that engineer use in design for civil engineering???
 Take Home Quiz 1
1.Find one (1) problem economic issues
related on
building/construction/environment/
structure/materials/road & drainage/
others activities.
2. Solve the problem follows the
i. Principle of eng economy
ii. Decision making process.